Setting up an advisory board leads to surprisingly large gains, including higher sales and productivity. Surprisingly, only 6% of entrepreneurs have established an advisory board for their business. That’s the conclusion of a BDC study Advisory boards: An untapped resource.
Trusted advice for your business
An advisory board is a group of trusted advisers that meets regularly to help you make better business decisions and develop a long-term vision for your business. Unlike a formal board of directors, it has no decision-making powers and carries no legal liability toward your company.
BDC analyzed a sample of 3,902 BDC clients. It compared those with advisory boards with those that don’t have boards but are similar in terms of size, industry, age, and region.
Sales and productivity gains
The study found:
- Annual sales were 24% higher on average at businesses with an advisory board, compared to companies that didn’t have an advisory board but have similar characteristics.
- Sales grew by 66.8% on average in the first three years after a company created an advisory board. This compares with 22.9% sales growth in the three years before the board was formed.
- Productivity increased by an average of 5.9% in the first three years after a board was formed compared with 3.2% in the previous three-year period.
Few entrepreneurs use advisory boards
As part of the study, BDC also commissioned a survey of entrepreneurs to find out about their experiences with advisory boards. Here are some of the findings of the survey of more than 1,000 leaders of private companies.
- Just 6% of small and medium-sized businesses have advisory boards.
- Businesses that do have them tend to be older and larger—most have been in business for 11 to 20 years, with 20 or more employees.
An essential tool
Entrepreneurs who had set up an advisory boards were asked to rate the advantages from one to 10. They gave the following ratings.
- An essential tool (8.2)
- Like having a sounding board (8.1)
- Allows you to develop a broader vision (8.0)
- Improves strategic business choices (8.0)
- Strengthens management’s convictions (8.0)
- Broadens the universe of knowledge and skills (7.8)
- Develops new ideas (7.8)
More likely to consider projects
Most entrepreneurs (86%) who have an advisory board said it has had “a big impact” on their company. They said they are more likely to consider growth projects or restructuring their operations.
Eight out of 10 business owners also said they would not hesitate to repeat the experience of setting up and running an advisory board.
One company’s experience
One company that has benefitted from an advisory board is Steelworks Design of Peterborough, Ontario, a client of BDC Financing and Advisory Services that designs, engineers and makes custom industrial machinery.
Rhonda Barnet, who manages Steelworks with her husband Donald, says a three-person advisory board helped Steelworks ride out some difficult times during the recession and position itself for renewed growth.
“I think it’s one of the most valuable tools an entrepreneur could use,” Barnet says of advisory boards.
Steelworks’s board was originally composed of three business executives—two retired and one active—from the Peterborough area who met monthly for free. The two retired executives have stepped down from the board and Barnet is planning to find new members this year.
An ambitious vision for the future
“I believe we are now headed to become a $5-million to $10-million company and that’s only possible because of the steps we’ve taken,” she says.
“If we hadn’t initiated a board and grown in this way, we probably would have been a $1 million company forever, a mom-and-pop shop.”